# Why you need to master probabilities…

Everybody hated probabilities in high school. The exercises like a bag with 20 red balls and 30 black balls, draw 2, what is the probability of having 2 black balls?

Trading is managing your luck at playing with a system that is random, and any forecast you make has non-zero chance to be wrong! In other words, you are not trading the market, you are trading a belief that the market will go (or continue to go) in one direction for some time to make profits. You must not leave that to anyone having no interest in probabilities.

Take the example of weather. You are not asking climatologist about the weather next week. Climatologists focus on long term climate change and whatever happens in the weeks or even months is insignificant; in other words it is noise! Meteorologists, on the opposite, are concerned by the short term, they have made a model in which they believe, after having tested many weather conditions and they bet on something likely to happen, e.g. sunny weather, and sell this information to their customers. You know weather forecasts are never perfect but they are improving as more and more data and computing power is made available to them!

Same goes with trading. Economists are interested in long term economic cycles (Kondratieff, …) and so their comments on many TV channels why S&P500 is up 0.5% because (un)employment shows an increase of 0.3%. Not only is 0.5% up or down on market index is noise, but there is surely no correlation at all, if you would look at data from the past.

Traders main interest should and must be how to have a system that can say with a level of certainty where the market is going in the short term. The model the trader is using should have a positive expectation, i.e. being profitable over long periods.

Yes, but sometime, the weather is sunny for very long time, and nothing happens? Correct! And for trader, it is the same. When market is too quiet or too much random (like it is now), trader must refrain from trading and risk blowing up his account

## 18 thoughts on “Why you need to master probabilities…”

1. A formidable share, I just given this onto a colleague who was doing somewhat analysis on this. And he in truth purchased me breakfast as a result of I found it for him.. smile. So let me reword that: Thnx for the treat! But yeah Thnkx for spending the time to discuss this, I really feel strongly about it and love reading more on this topic. If potential, as you develop into expertise, would you mind updating your blog with extra particulars? It is extremely helpful for me. Huge thumb up for this blog post!

2. Fantastic goods from you, man. I have remember your stuff prior to and you’re
just too great. I really like what you’ve received here,
certainly like what you are stating and the
way through which you are saying it. You make it entertaining and
you continue to take care of to stay it wise. I can’t wait to learn far more from you.
This is really a wonderful site.

3. Hey would you mind letting me know which web host you’re utilizing?
a lot faster then most. Can you suggest a good internet hosting provider at
a honest price? Kudos, I appreciate it!

4. This web site certainly has all the information and facts I needed concerning
this subject and didn’t know who to ask.

5. Major thanks for the blog post.Much thanks again. Want more.

6. I love looking through a post that can make people think. Also, many thanks for permitting me to comment!

7. Hey! I’m at work surfing around your blog from my new iphone!
Keep up the superb work!

8. Great post. I was checking continuously this blog and I am impressed!

Very helpful info specifically the last part 🙂 I care for
such information much. I was seeking this particular information for a very long time.

Thank you and best of luck.

9. Thank you for the good writeup. It in fact was a amusement account it.
However, how could we communicate?

10. I think this is a real great blog article.Really thank you! Great.

11. I have been browsing online more than 3 hours lately, yet
I by no means found any fascinating article like
yours. It’s beautiful value enough for me. In my opinion, if all web owners and bloggers made
just right content as you did, the net can be a
lot more helpful than ever before.

12. Greetings, I do think your site could possibly be having browser compatibility issues.

When I look at your website in Safari, it looks fine however, when opening in IE, it’s got
some overlapping issues. I merely wanted to provide you with a quick heads up!

Aside from that, great blog!

13. Howdy! I know this is kind of off-topic but I needed to ask.
Does building a well-established website such as yours take a large amount of work?

I’m brand new to operating a blog however I do write in my journal on a daily basis.
I’d like to start a blog so I can share
my own experience and thoughts online. Please let me
know if you have any suggestions or tips for brand new aspiring bloggers.
Appreciate it!

14. Very nice post. I just stumbled upon your blog and wished to say that I’ve really
enjoyed surfing around your blog posts. After all
I will be subscribing to your feed and I hope you write again soon!

15. Masayuki says:

What’s the answer to the two blackball probabilities?